Although some state laws are involved, bankruptcy cases are within the exclusive jurisdiction of the United States federal courts as opposed to the various state courts. As per the Administrative Office of the United States Courts, 884,956 bankruptcy petitions were filed in 2015 that were not business related. That’s about a 12 percent decrease from 2014, but many consumers still suffer from overwhelming financial pressure. The three most common bankruptcy filings are Chapter 7, Chapter 13, and Chapter 11.
Chapter 7 bankruptcy relief is often sought by debtors who have lost their jobs or are low-wage earners. Here are the main differentiators of this type of bankruptcy:
- A discharge in a Chapter 7 bankruptcy eliminates nearly all, if not all of your debt.
- You are required to liquidate your assets, but some of them are exempt from claims of creditors.
- The court schedules a meeting of your creditors, but they usually do not attend.
- The trustee in bankruptcy who administers over the proceeding will be present along with you and your attorney.
- The trustee will inquire whether you have any assets or claims that can be pursued to give to your creditors.
If the bankruptcy petition is approved, you will be discharged from your debt.
A Chapter 13 bankruptcy operates as a reorganization of one’s debt. It’s the most common of all bankruptcy proceedings. As part of the process, you are required to formulate a plan to repay your creditors.
- That plan can last anywhere between three and five years. You must repay all or part of your debts with them during that period.
- Assuming that you comply with all terms and conditions of the plan, some debts might even be liquidated.
- Chapter 13 bankruptcies are also assigned to a trustee who administers over the proceeding.
- Any payments pursuant to the plan are made directly to the trustee.
Chapter 13 bankruptcy is an attractive alternative if you are employed, do not qualify for Chapter 7 relief, and you want to retain certain assets like your home and motor vehicle.
Converting from Chapter 13 to Chapter 7
If you cannot meet the obligations of your Chapter 13 bankruptcy, you might be able to convert it to a Chapter 7. A bankruptcy court might even force you to do that if you are unable to make payments to your creditors.
Proceedings under Chapter 11 of the United States Bankruptcy Code are often brought by the owners of small businesses who have more debt than income.
- Chapter 11 allows a business owner to keep his or her business, but he or she must pay debts in accordance with an acceptable plan.
- Chapter 11 bankruptcy calls for relinquishment of certain rights.
- The business owner will have to give up some degree of control of the business to the bankruptcy court, creditors, and any professionals who have been assigned to help the business owner rebuild his or her credit.
- The business owner can continue operating their business while they focus on improving the company’s financial health.
It’s advisable to speak with a knowledgeable and experienced bankruptcy lawyer Peoria IL from our law firm before you commit to filing for debt relief. Contact us for a free consultation during which you can discuss what type of bankruptcy plan might suit you best.
Thanks to our friends and contributors from Smith & Weer, P.C. for their insight into common bankruptcies.